New Delhi: Power project developers in India, sourcing solar modules from China, plan to declare force majeure on meeting project completion deadlines because of supply disruptions caused by the coronavirus outbreak, multiple people aware of the development said.
Chinese vendors have alerted Indian developers about delays in production, quality checks and transport of components due to the outbreak, the people said. Modules account for nearly 60% of a solar project’s total cost. Invoking the force majeure clause enables a developer to cite disruption from an unforeseen event—in this case the flu epidemic—to justify the delay.
“It’s a force majeure event beyond control and in all fairness, relief should be extended to developers," said Sanjay Aggarwal, managing director of Fortum India Pvt. Ltd. “They are already reeling under strain due to regulatory overhang of safeguard duty, GST issues and on top, this issue could potentially be the straw that broke the camel’s back if their bank guarantees get encashed due to the delay in schedules."
Fortum India, which is building several large clean energy projects in the country, is owned by Fortum OYJ, the Finnish state-controlled company that is one of the largest nuclear and hydropower generators in Europe and Russia.
Chinese companies dominate the Indian solar components market, supplying about 80% of solar cells and modules used here, given their competitive pricing. Power purchase agreements signed by developers specify strict commissioning deadlines and a failure to meet them can result in fines and encashment of their bank guarantees. The virus scare and the proposed customs duty on solar module imports threaten to raise costs for developers and potentially impact India’s solar trajectory.
“There are travel advisories being issued, supply chains being disrupted, certifications are midway, which might get delayed, and many such interconnected issues," Sanjay Aggarwal said. “The situation remains fluid and no one has visibility of normalcy and back to ‘business as usual’. While one can debate on the level of impact and how long it will last, the fact is that coronavirus is a reality and it will impact schedules."
Chinese solar module manufacturers supplying to India include Trina Solar Ltd, Jinko Solar Co. Ltd, JA Solar Holdings, ET Solar, Chint Solar Co. Ltd and GCL-Poly Energy Holdings Ltd. With China clamping down on travel to contain the outbreak, Indian solar power developers are concerned about the timely delivery of components to commission their solar parks and rooftop projects.
“As China has extended their annual holidays, the solar panel and inverter manufacturing and despatches will have an impact on Indian projects," said Sunil Jain, chief executive officer of Hero Future Energies Pvt. Ltd. “So, the entire value chain gets impacted. I think the government should consider this as a force majeure condition and provide necessary extension. On top of this, developers will have to grapple with the customs duty impact announced in budget."
“We have been told by our vendors in China that due to the coronavirus situation, there are unexpected delays in production, quality checks and logistics," said Sanjeev Aggarwal, founder and chief executive officer of Amplus Energy Solutions. Malaysia’s state-run oil and gas company, Petroliam Nasional Bhd or Petronas owns Amplus, one of India’s largest rooftop solar power producers.
The latest developments come at a time when India’s solar space is struggling due to mounting payments to generators and banks wary of lending to renewable energy developers. There has also been a backlash from global investors over the Andhra Pradesh government’s decision to have a relook at renewable energy contracts and the Union budget approving an enabling mechanism to raise tariffs on imports of green energy equipment such as solar cells and modules.